Goldman Sachs-backed Circle’s recent acquisition of Poloniex has the potential to create a Wall Street-fintech-crypto exchange giant. And through crowdfunding platforms, you can get in on the action, as Circle approaches retail investors for further funds to shore up its aggressive move into the institutional and consumer global liquidity and payments markets.
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Circling in on The Big Boys – With the Big Boys’ Support
Circle is a peer-to-peer payments technology company with headquarters in Dublin and Boston. It has two operating peer-to-peer payments solutions and one in development.
Circle Trade is a platform for cryptocurrency investors with at least $250,000 USD to invest. In development is a blockchain-supported protocol called CENTRE, enabling wallet-to-wallet digital transactions across multiple fiat currencies and crypto assets.
It also operates Circle Pay, an app for everyday users to send money to each other without fees or exchange rate mark-ups.
And now the Goldman Sachs-backed company owns Poloniex, one of the world’s most active digital asset exchanges. Their purchase of Poloniex for around $400 million was Circle’s move back into cryptocurrencies, having made a strategic move toward blockchain protocols and payment solutions, and out of currencies themselves.
Why Buy Poloniex?
With a rapidly expanding user base and aspirations to roll out more blockchain products, on the surface Circle’s acquisition of Poloniex seems counter-intuitive.
Know-Your-Customer (KYC) and AML (Anti-Money Laundering) regulations may be behind the move. By adding Circle manpower to its compliance efforts, Poloniex, which had struggled to keep apace with new customer sign-ups as demand for cryptocurrency trading increases, is better positioned to get ahead of regulations.
Documents from the SEC appear to validate this view:
Takeaway: the SEC did indeed informally indicate to Circle that regulators would "not pursue any enforcement action for prior activity" at Poloniex as long as Circle cleans up Poloniex and turns it into a regulated exchange.
— Nathaniel Popper (@nathanielpopper) February 26, 2018
With all exchanges ramping up efforts to comply with regulations that currently don’t exist but seem to be inevitable, Poloniex should benefit from Circle’s added compliance resources.
Circle stands to benefit by becoming the U.S.’s first fully SEC-compliant exchange. The SEC has dampened efforts by other digital asset players in the past, most notably Rafferty Asset Management and Exchange Traded Concepts LLC’s plans to launch bitcoin-based ETFs.
A Hybrid Capital Raising Model
Circle’s capital raising efforts are a unique hybrid of venture capital, an ICO launch (to help fund CENTRE), and Wall Street funding.
The company is backed by a Wall Street mainstay in Goldman Sachs and it has raised an additional $136 million in venture capital so far, which includes a $60 million Series D round in June 2016, involving a consortium of Chinese partners, including Baidu, CICC Alpha, China Everbright, Wanxiang, and CreditEase.
Now, it is seeking finance through various equity crowdfunding investment platform, which match startups with retail investors, typically prior to an anticipated IPO.
So now everyday investors can get a piece of the Circle pie and benefit from blockchain technology and the exchange of cryptocurrencies without direct exposure to the volatility of the crypto market itself.
But as capital raising markets mature and diversify, the tradition of favoring institutional investors over retail investors remains. Stock in Circle is now priced at some ten times it was for early — that is, institutional — investors.
So while the idea of investing in Poloniex’s new parent company and innovative disruptor might appeal to many mom-and-pop investors, those hoping cryptocurrencies and blockchain technology will revolutionize and democratize access to investment opportunities and money are likely to be disappointed in Circle.
It may be a disruptor in the money transfer industry, but it has succumbed to favoring institutional investors over retail investors in a manner more aligned with old school Wall Street strategies.
Nevertheless, the opportunity to jump in on the crowdfunding phase remains for a few days yet.
Have your say — Would you invest in a startup for ten times the price institutional investors pay? Are you disappointed a fintech startup failed to make more of an effort to also revolutionize fundraising strategies?
Images via Pixabay, Poloniex, Circle